Friday, January 19, 2018

Internet Giants Aim to Preserve Their Regulatory Advantage

Internet giants Google, Amazon, and Facebook, among others, announced, through their trade association, the Internet Association, that they plan to join legal challenges to the FCC’s recent Restoring Internet Freedom Order (RIF Order). Internet Association President & CEO Michael Beckerman issued the following statement in conjunction with the announcement:
The final version of Chairman Pai’s rule, as expected, dismantles popular net neutrality protections for consumers. This rule defies the will of a bipartisan majority of Americans and fails to preserve a free and open internet. IA intends to act as an intervenor in judicial action against this order and, along with our member companies, will continue our push to restore strong, enforceable net neutrality protections through a legislative solution.
The recently-repealed 2015 Open Internet Order approach is not so neutral at all, however, in its practical effect. The Order had the effect of supporting the imposition of stringent privacy restrictions on Internet service providers (ISPs), like Comcast and Verizon Wireless, which did not apply to Google, Amazon, and other major Internet companies that are among the largest collectors of personal consumer data. This approach, under which the largest Internet giants are subject to less stringent privacy regulation, attracted strong bipartisan criticism, as former Federal Trade Commission Chairman Jon Leibowitz, a Democrat appointee, explained in April 2017:
By creating a separate set of regulations that bind only internet service providers — but not other companies that collect as much or more consumer data — with heightened restrictions on the use and sharing of data that are out of sync with consumer expectations, the FCC rejected the bedrock principle of technology-neutral privacy rules recognized by the FTC, the Obama administration, and consumer advocates alike. Protecting privacy is about putting limits on what data is collected and how it is being used, not who is doing the collecting, and for that reason, a unanimous FTC — that is, both Democratic and Republican commissioners — actually criticized the FCC’s proposed rule in a bipartisan and unanimous comment letter as “not optimal,” among 27 other specific criticisms of the rule (emphasis added).
The 2015 Order also imposed several strict conduct regulations on ISPs like Comcast and Verizon Wireless. These public utility-like neutrality limitations were not applied to system administrators for business networks, to cloud backup services during uploads of data from customers, or to online gaming services that may throttle bandwidth at certain times to prevent their services from overloading and crashing. It also does not apply to traffic on private networks operated by “edge providers” like Google and Amazon.

And we’ve now learned that it did not apply to Apple’s sub rosa throttling of iPhones in what Apple now claims – when the throttling was discovered – was an attempt to preserve the battery life of phones. While Apple argues that this undisclosed throttling was needed as a measure to protect iPhone owners, it could also have the effect of encouraging more iPhone owners to pay to upgrade from their older devices instead of replacing their batteries. In any event, Apple did not disclose the practice to its consumers.

Tom Evslin, former chief technology officer for the state of Vermont and former chief executive of VoIP provider ITXC Corp, described in August 2017 how Google and Amazon engage in the same throttling and prioritization behavior that they seek to prohibit ISPs from doing:

In fact, however, web giants like Google and Amazon have private networks that connect to the internet in many locations. They have data caches (think of them as content warehouses) around the world. Their websites do pop up faster than yours because their bits travel mostly on their private networks and avoid internet backbone and interchange congestion. In other words, they have their own private fast lanes. You can’t achieve this speed for your website unless you build a private network of your own (unlikely) or host your website on Amazon or Google, in which case they may share some of their private access network. I have hosted services on Amazon, and they charge me more depending on how many locations from which I want my data served. In other words, faster is more expensive on their network.

Conveniently these private fast lanes are specifically exempt from the 2015 Federal Communications Commission’s Open Internet (aka “net neutrality”) regulations, which reclassified basic internet access service in a way that lets the FCC micromanage it and prohibit public “fast lanes.” The members of the Internet Association are “edge services,” so they are unregulated by this rule.

Regardless of how much Internet Association members like Google and Amazon may claim they want to bring back “net neutrality” to protect consumers, a significant impact of their actions is to try to re-impose regulation to protect themselves from ISP competition. If they succeed, the result will be to keep more stringent regulations on their ISP competitors. To the extent that regulation of providers of services in the Internet ecosystem is needed, it at least should be a somewhat uniform enforcement regime, not one so disparate that ISPs are regulated in a much more heavy-handed manner than Internet web giants like Google and Amazon.

Tuesday, January 16, 2018

Restoring Internet Freedom Order Bolsters VoIP Freedom

In a blog post from October 2017, I wrote about "The Case for Keeping VoIP Free from Legacy Regulation." The blog discussed Charter Advanced Services (MN) v. Lange, a case with important implications as to whether VoIP services will remain largely free from state legacy regulation. The U.S. District Court decision under review rightly concluded that the VoIP offering at issue "engages in net protocol conversion, and that this feature renders it an 'information service' under applicable legal and administrative precedent." 
On January 10, counsel for Charter Communications filed a letter with U.S. Court of Appeals for the Eighth Circuit, outlining ways in which the Restoring Internet Freedom Order supports the conclusion that Charter's Spectrum Voice VoIP service is, in fact, a Title I information service. Among other things, the letter points out that the Restoring Internet Freedom Order:
  • [E]mphasizes the "narrow scope" of the [telecommunications management] exception [to Title I] and reiterates that features "designed to be useful to end-users rather than providers" do not fall within it.
  • Reiterates that information services can "include[] a transmission component," and that this "does not render broadband Internet access services telecommunications services; if it did, the entire category of information services would be narrowed drastically."

  • Applies the FCC's standards for assessing when information and telecommunications components are functionally integrated and what the provider "offers"… [and] …finds that "relevant classification precedent focuses on the nature of the service offering the provider makes, rather than being limited to the functions within that offering that particular subscribers do, in fact, use."
  • Expressly preempts the states from public utility regulation of broadband Internet services, reiterating to the "longstanding federal policy of nonregulation for information services" and emphasizing "Congress's approval" of that "preemptive federal

Certainly, broadband Internet access services offer much more transforming, processing, and other functional capabilities to end user subscribers than VoIP services. Yet, the highlighted analytical aspects of the Restoring Internet Freedom Order surely strengthen the conclusion that Charter's Spectrum Voice services are information services under Title I. In sum, the Restoring Internet Freedom Order bolsters VoIP freedom from state legacy regulation. 

Congress Should Advance Consensus Music Copyright Reforms in 2018

As the New Year gets underway, opportunities have opened for Congress to make needed reforms regarding copyright protections in music. A broad consensus has emerged in support of a trio of music-related copyright bills that would improve the ability of recording artists, producers, and songwriters to exercise their rights in copyrighted music or at least to enjoy the financial rewards for their efforts. In 2018, Congress should promptly take up the CLASSICS Act, the AMP Act, and the Music Modernization Act.  

Music copyright is grounded in the U.S. Constitution. Article I, Section 8, Clause 8 – the  “Copyright Clause” – confers on Congress the power “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” As Free State Foundation President Randolph J. May and I explain in our book, The Constitutional Foundations of Intellectual Property: A Natural Rights Perspective (2015), copyright is a unique private property right, rooted in an author’s natural right to enjoy the fruits of his or her creative labor. Federal copyright protections in music help ensure that copyright holders, including creative artists, enjoy exclusive rights to the potential proceeds from their musical labors.

Copyright protections provide an important economic incentive for the work and expense of new creative works. The International Intellectual Property Alliance’s report, Copyright Industries in the U.S. Economy,” found that “core copyright industries” generated $1.2 trillion in economic activity and employed 5.5 million workers in the U.S. in 2015. Sound recordings and musical compositions are extraordinary sources of value. A report by Recording Industry Association of America’s Joshua P. Friedlander, cites $7.7 billion in 2016 U.S. retail revenues from recorded music.

*     *     *

However, the Copyright Act is in need of comprehensive updating to address changes brought about by digital technologies and the Internet. Many provisions of copyright law that touch on sound recordings and musical compositions need to be reformed to better enable copyright owners to exercise their rights and to direct proceeds to their rightful recipients. The three bills now pending in Congress would, if enacted, provide targeted reforms to further those purposes:

(1) The CLASSICS Act -- H.R. 3301. Copyright holders do not have the same right under federal law to receive royalties for public performances of sound recordings fixed prior to 1972 that copyright holders of later recordings have. As a result, major digital music service providers, such as Pandora and Sirius XM, have publicly performed pre-72 sound recordings by digital audio transmission to their subscribers – without obtaining consent or paying royalties to the copyright owners of those sound recordings.

The Compensating Legacy Artists for their Songs, Service, and Important Contributions to Society Act – or CLASSICS Act – would finally provide public performances of pre-72 sound recordings via digital audio transmission with the same federal protections that post-72 sound recordings receive. Copyright owners of pre-72 sound recordings would receive royalties based on rates established by the Copyright Royalty Board pursuant to its “willing buyer/willing seller” standard that seeks to approximate market prices for public performances of sound recordings via digital audio transmissions. And the CLASSICS Act would provide a streamlined resolution process for existing lawsuits involving state law claims regarding digital audio transmissions of pre-72 sound recordings. (See my July 2017 blog for more on the CLASSICS Act.)

(2) The AMP Act -- H.R. 881. Producers, mixers, and sound engineers serve important roles in the creation of sound recordings. Many sound recording artists and sound recording copyright owners desire to reward financially producers and others when their sound recordings are publicly performed through digital audio transmissions. Yet, existing law does not provide a streamlined statutory mechanism for creative artists to voluntarily direct portions of their own royalties for outright payments to producers, mixers, or engineers.

The Allocation for Music Producers Act – or AMP Act – would establish in the Copyright Act a process for producers, mixers, and sound engineers to directly receive royalty payments. Under the AMP Act, sound recording artists and other copyright owners of sound recordings could submit “letters of direction” to a collective entity – SoundExchange – authorizing direct distribution of such payments. Importantly, the AMP Act respects the exclusive rights of creative artists and other copyright holders by permitting letters of direction – not requiring any new subdivision of royalties. It does not undermine the liberty of creative artists and studios to negotiate contracts with producers, mixers, and engineers. Nor does the AMP Act give producers any kind of misguided “moral rights” against copyright owners of sound recordings.

(3) The Music Modernization Act -- H.R. 4706. Currently, songwriters sometimes fail to receive royalties in a timely fashion for digital audio transmissions of their songs by services like Spotify. Such services encounter difficulties in accurately locating songwriters. Among other things, the Music Modernization Act would establish a Mechanical Licensing Collective (MLC) to facilitate accurate royalties for songwriters by ensuring digital music services have correct information. Digital service providers would receive blanket usage licenses for copyrighted compositions.

Also, mechanical license royalties – revenues for songwriters when sound recordings of their compositions are recorded and copied – are subject to a rate standard that results in exceedingly low returns for songwriters. Under the Music Modernization Act, the Copyright Royalty Board would set mechanical licensing royalties for music compositions according a “willing buyer/willing seller” standard. Although rate controls are always less-than-desirable, where such controls do exist they should at least seek, to the extent possible, to mirror market prices. Rates established under the willing buyer/willing seller standard are intended to “most clearly represent the rates and terms that would have been negotiated in the marketplace” between willing parties.

*     *     *

Each of these three bills has multiple co-sponsors in the House of Representatives. And each enjoys a broad base of support among music copyright industry associations and organizations. Consistent with the Constitution’s charge to promote the progress of the arts by securing the exclusive rights of authors, including creative artists, Congress should give these three music copyright bills timely consideration.

Thursday, January 11, 2018

President Trump Issues Executive Order to Streamline Rural Broadband Deployment

On January 8, 2018, President Donald Trump issued an Executive Order on “streamlining and expediting requests to locate broadband facilities in rural America.” Specifically, the Executive Order will require Federal property managing agencies to evaluate the effectiveness of the General Services Administration’s (GSA) Common Form Application. This application was created to enable Federal agencies to process wireless facility siting requests more efficiently and provide information about the availability of locations for wireless broadband deployment. Additionally, all Federal property managing agencies will be required to report to the GSA on a quarterly basis information about the number of applications received, approved, and rejected.
President Trump said that streaming federal requests for broadband deployment should “reduce barriers to capital investment, remove obstacles to broadband services,” and “accelerate the deployment and adoption of affordable, reliable, modern high-speed broadband connectivity in rural America.”

It’s Time to Stop the Personal Attacks on Ajit Pai

By now, most readers of this space are all too familiar with the ugly personal attacks on Federal Communications Commission Chairman Ajit Pai occasioned by the agency’s mid-December action repealing the public utility-like regulations imposed on Internet service providers in 2015. I don’t want to recount here the substance of the personal attacks and invective hurled at Chairman Pai except to say that they range from foul epithets to crude racist innuendo to – shockingly – outright death threats. Even his wife and young children have not been immune.
If you want just one sample, take a look at “The Torment of Ajit Pai” by Noah Rothman in Commentary.
It’s no secret that I support the Commission’s Restoring Internet Freedom Order (RIF Order). But this is not about the merits of the Commission’s action. I understand there are arguments on both sides of the issues that advocates hold passionately.
But it should go without saying that it’s one thing to advocate your views passionately and another altogether to engage in personal attacks like those against Chairman Pai that, even now, continue unabated. Those government officials, whether currently at the FCC or in Congress, who are leading efforts, through whatever avenues, to overturn the FCC’s RIF Order bear a special responsibility to speak out forcefully and unequivocally against the personal attacks. Former Commissioner Michael Copps, commendably, did so early on. So, too, should leaders of other groups opposed to the FCC’s action.
It’s possible that we may have slipped up along the way – and if so I express my regrets – but I have tried hard since the founding of the Free State Foundation in 2006 to stick to debating the merits of the issues at hand – and to avoid engaging in personal attacks, no matter the depth of disagreement. It’s been my firm conviction that, regardless of any personal name-calling engaged in by those with opposing views, going down that path necessarily undermines the civil discourse on which the rule of law and the integrity of the administrative process ultimately depend.
That’s why, over the years, I’ve made a point of emphasizing, even while disagreeing with this or that particular action, that I didn’t question the good faith or intentions of those on the other side. For example, in a 2007 blog on net neutrality (yes, we were debating net neutrality in 2007!), I said this while disagreeing with then-Commissioner Michael Copps: “I don’t for one moment question his good faith or good intentions.” Again, in a 2011 blog, disagreeing with him, I emphasized: “I have never questioned Commissioner Copps’ good faith.”
Of course, I often opposed the legal and policy positions of former Chairman Tom Wheeler. But in doing so, several times, as in this 2014 Perspectives, I made a point of not questioning his “good intentions.” Indeed, when Mr. Wheeler faced attacks concerning his fitness to serve during his confirmation hearing, I publicly defended him.
As for Commissioner Clyburn, I said this in a 2016 blog: “I don’t always agree with [her] positions. But I respect her good faith in arriving at those positions, and I’ve always been pleased to have Commissioner Clyburn participate at Free State Foundation conferences to explain and advocate her views.”
With regard to those parties with whom my views are most often at odds regarding net neutrality, I said this in a 2014 blog: “I do not question the good faith or motivations of the consumer advocates advancing this claim….”
Finally, in responding directly to a piece written by Gigi Sohn, former top staffer to Tom Wheeler, I said this in a 2017 Perspectives: “I’ve known Gigi for many years, and, as she knows, I’ve considered her a friend even though we generally disagree on matters of communications law and policy.” And I added: “I’ve always believed, and still do, that differences in philosophical or policy perspective shouldn’t stand in the way of reasoned discussion and debate – or of friendship.”
I stand by that last statement and will always continue to do so. Perhaps they have been doing so already, but, if not, I think it’s incumbent on my friends – that’s the “of friendship” part – who are leading the fight against the Restoring Internet Freedom Order to demand that those engaging in personal attacks cease and desist.
In the name of civil discourse and reasoned debate, which are essential bedrocks of our democracy, we should all be able to agree that it’s time for the ugly personal attacks on Chairman Pai to stop.

Wednesday, January 10, 2018

Supreme Court Denies Review of Narrow Ruling on State VoIP Regulation

On January 8, the U.S. Supreme Court denied a petition to review the 8th Circuit Court of Appeals' decision in Sprint Communications v. Lozier (2017). This leaves standing the 8th Circuit’s conclusion, based on Section 251(g) of the Telecommunications Act of 1996, that federal law did not preempt state authority to regulate nonnomadic, intrastate long-distance VoIP calls. The overall import of the case is decidedly narrow. As the 8th Circuit recognized in Lozier, the FCC's Connect American Fund Order (2011) explicitly superseded the pre-1996 Act access charge regime that was at issue in the case. Thus, the decision in Lozier was essentially limited to the matter of intrastate access charges incurred by Sprint between 2009 and 2011 – when the CAF Order was adopted.

My October 2017 blog post, "The Case for Keeping VoIP Free from Legacy Regulation" discusses a pending decision by the 8th Circuit that could be far more consequential for the future of IP-based services. For further background and insight, also see the April 2013 Perspectives from FSF Scholars paper by Professor and FSF Board of Academic Advisors member Daniel Lyons: "The Challenge of VoIP to Legacy Federal and State Regulatory Regimes."

Tuesday, January 09, 2018

President Trump Signs Two Executive Orders to Promote Rural Broadband

President Trump has signed two new executive orders intended to reduce regulatory barriers to broadband investment in rural areas, which he said would “provide broader, faster and better” Internet coverage. 

The first executive order was aimed at streamlining and expediting requests to locate broadband facilities on federal lands. In it, President Trump directed the General Services Administration to complete a review of the forms and application process within 180 days. After the evaluation is completed, the order directs the GSA to implement appropriate revisions. The order also requires that all Federal property managing agencies use the GSA Common Form Application for requests to locate broadband facilities on Federal property, and that each agency prepare quarterly reports to GSA on the agency’s use of the common form application.

The second order directs the Department of Interior to “develop a plan to support rural broadband development and adoption by increasing access to tower facilities and other infrastructure assets managed by the Department of the Interior.” DOI is further directed to draft model terms and conditions for use of the towers and other infrastructure assets for broadband deployment, and to provide a status report on its progress in 180 days.

President Trump announced the executive orders at an appearance before the American Farm Bureau Federation in Nashville, Tennessee on January 8, 2018. During the announcement, President Trump said: “Those towers are going to go up, and you’re going to have great, great broadband.” 

Paid Prioritization Arrangements Improve Telemedicine Prospects

Telemedicine is an emerging Internet application that requires a very high level of end-to-end reliability. It includes telesurgery, which now allows specialized surgeons in one location to operate on patients in completely different locations. Telemedicine can offer patients in small hospitals or remote areas access to highly-skilled specialists who otherwise would not serve those areas. Telesurgery, as well as certain other telemedicine applications, can only become viable if the providers have access to extremely reliable, high-speed Internet connections.
In contrast, many other Internet uses do not require the same level of reliability or speed. Email traffic, most file downloading, and many other uses lose little of their value if their transmission is delayed somewhat, although too long a delay could diminish their value. These types of Internet applications simply do not require the same type of highly reliable, high-speed access that telemedicine and other applications require.
Telemedicine is an example of an Internet application that could benefit from receiving a prioritization arrangement. Prioritization arrangements are agreements between broadband providers and providers of content over the Internet that allow the content provider to receive priority access in a so-called “fast lane” to avoid congestion on the Internet. As FCC Commissioner Michael O’Rielly pointed out in April 2017:Even ardent supporters of net neutrality recognize, as I've said before, that some amount of traffic differentiation or ‘prioritization’ must be allowed or even encouraged.”
The 2015 Open Internet Order contained a “bright-line” ban on paid prioritization arrangements, which was eliminated when the FCC adopted the December 2017 Restoring Internet Freedom Order (RIF Order). Free State Foundation scholars have argued that the new 2017 Order will lead to more capital investment, making better and more reliable Internet connections available to more Americans, and will also allow for innovative prioritizations and other arrangements that can have significant economic benefits. Telemedicine, with its need for highly reliable, high-speed Internet access, is likely to be one of the applications that benefits most from this increased investment and potential for more flexibility in access arrangements.
Some, however, have suggested that the 2017 RIF Order may threaten the future development of telemedicine. For example, Mei Wa Kwong, Interim Executive Director and Policy Advisor for the Center for Connected Health Policy, wrote:
At the December 14, 2017, open commission meeting of the Federal Communications Commission (FCC), commissioners will vote on whether to repeal current net neutrality rules. Such action may have wide-reaching impacts on the use of telehealth. Community health clinics, such as federally qualified health centers (FQHCs) and rural health centers (RHCs), could see higher rates for connectivity that may reduce, eliminate, or discourage them from using telehealth to deliver health care services, especially in rural areas. Additionally, telehealth in the home could be severely curtailed as consumers may face higher prices for connectivity that would be sufficient for a telehealth interaction. To allow practitioners and patients to provide and access care anywhere would require reliable and adequate connectivity that could be priced out of the users' range with removal of net neutrality. 
The concerns described above are entirely, even by their own terms, conjectural, and are unlikely to occur in any way that is harmful to the development of telemedicine. Paid prioritization was not prohibited before the 2015 Order, and in any event such arrangements were never implemented in any significant way. More importantly, however, experience with paid prioritization arrangements in other markets provides strong evidence that Internet providers will not have the incentives to engage in conduct likely to harm the emerging telemedicine market.
In my May 2017 Perspectives from FSF Scholars, I described how paid prioritization arrangements are very common throughout the economy. For example, the U.S. Post Office has long offered priority delivery, airlines make priority boarding available to customers, grocery stores allow for priority placement of certain products, and highways all offer priority toll lanes to drivers. In all of these various markets where paid prioritization arrangements have regularly been used, the result is more capital investment and more benefits for consumers. When such arrangements are put in place, the result is not to price the priority service out of the range of the users with the greatest need, but rather, to price in such a way that both the priority and non-priority customers are served, usually with both groups better off than they otherwise would have been.
Indeed, Virginia Governor Terry McAuliffe last year explained how the current I-395 expansion project in Alexandria, Virginia, is using an optional toll system to attract private investment for highway construction that would not have otherwise occurred. As McAuliffe correctly pointed out, this toll system will relieve congestion and improve access for all travelers, not just the ones who choose to pay the toll to be in the fast lane.
We can expect the same with telemedicine following the 2017 Restoring Internet Freedom Order. FCC Chairman Ajit Pai recently explained how the RIF Order will help, not harm, the prospects for telemedicine in rural areas by promoting more investment and allowing for more flexibility in priority arrangements for services like telemedicine:
One of the biggest drags on investment in faster, better, cheaper broadband has been the FCC’s 2015 decision to scrap the tried-and-true, light-touch regulation of the Internet and replace it with heavyhanded micromanagement. In two weeks, we’ll vote on a plan to restore Internet freedom and bring back the same legal framework that was governing the Internet three years ago today and that has governed the Internet for most of its existence. This will result in increased investment in infrastructure and more digital opportunity for seniors, especially in rural and low-income urban areas.
One aspect of this proposal I think is worth highlighting here is the flexibility it would give for prioritizing services that could make meaningful differences in the delivery of healthcare. By ending the outright ban on paid prioritization, we hope to make it easier for consumers to benefit from services that need prioritization—such as latency-sensitive telemedicine. Now, we can’t predict exactly which innovations entrepreneurs will come up with. But by replacing an outright ban with a robust transparency requirement and FTC-led consumer protection, we will enable these services to come into being and help seniors.
As Commissioner O’Rielly summarized in his statement supporting the Restoring Internet Freedom Order:
Clearly, there are cases today and many more that will develop in time in which the option of a paid prioritization offering would be a necessity based on either technology needs or consumer welfare. I, for one, see great value in the prioritization of telemedicine and autonomous car technology over cat videos. 

In sum, the real threat to the emergence of telemedicine is not, as Mei Wa Kwong suggests, the removal of the ban on paid prioritization. Rather, the threat to telemedicine is from prohibiting innovative access arrangements and suppressing capital investment that would otherwise increase capacity, allow greater access, and improve reliability of Internet connections. Telemedicine is likely to benefit from an acceleration in capital investment and from allowing more flexible arrangements that make priority access available where it is needed the most. And, to be sure, there are other emerging innovative Internet applications that will as well.

Tuesday, January 02, 2018

IP Theft Reduces Economic Activity

by Michael J. Horney
Free State Foundation scholars have said that strong protections of intellectual property (IP) rights encourage creativity, innovation, and economic activity. Moreover, the absence of strong protections of IP rights discourages creativity and innovation and leads to IP theft, like piracy or counterfeiting.

So, as we begin 2018, it seems appropriate to emphasize the extent of the economic losses due to theft of intellectual property. In this regard, it’s worth taking a close look at a 2017 report by Frontier Economics focusing on piracy. The report estimated that a one percentage point reduction in piracy in 2017 would lead to an additional $34 to $54 billion in economic activity for OECD countries.
In other words, strengthening IP rights protections and enforcements efforts reduces IP theft and this, in turn, promotes economic activity.
In a 2016 study, the OECD and the EU Intellectual Property Office found that, in 2013, trade in counterfeit and pirated goods accounted for as much as 2.5% of the value of international trade involving OECD countries, or $461 billion. The 2017 report by Frontier Economics, “The Economic Impacts of Counterfeiting and Piracy,” used the $461 billion figure to estimate additional findings regarding the impact of IP theft on OECD countries. Frontier Economics found that the value of domestically traded pirated and counterfeit goods was between $249 billion and $456 billion in 2013. This means the total value of pirated and counterfeit goods traded domestically and internationally among OECD countries was between $710 billion and $917 billion in 2013. These figures only include physical IP theft and, therefore, do not include online piracy, which obviously is a massive problem by itself.
IP theft negatively impacts job creation and economic growth because it discourages artists and innovators from creating new products and services. In 2013, the negative impact of counterfeiting and piracy on economic activity translated to a net loss of between 2 and 2.6 million jobs in the OECD. Frontier Economics also found that a one percentage point increase in the size of piracy reduces economic growth rates by 0.21 to 0.33 percentage points. Applying that to the nominal GDP of the OECD in 2017 means a reduction in economic activity by $34 to $54 billion.
Frontier’s 2017 report only estimates the value of physical pirated and counterfeit goods that were traded domestically or internationally among OECD countries. So when considering the additional harms created by online piracy, it is clear that IP theft is even a larger problem throughout the world than the Frontier estimates might imply.
The United States should continue to strengthen protections of IP rights and enforcement efforts to decrease the negative impact of IP theft. This would encourage additional innovation and economic activity. And reducing the size and scope of IP theft in the United States should encourage trading partners and other OECD countries to strengthen their own IP rights protections.